Treasuries steadied in early Asian trading after 10-year yields dropped three basis points to 4.31%. Oil rose 0.4% after declining in the prior session. A gauge of the dollar extended its gains to a third day.
Investors pared back positions in technology stocks — the market’s longtime leaders — amid growing concern that the rally since April has advanced too far and too quickly. That momentum will be tested this week as focus turns to Jackson Hole, Wyoming, where Federal Reserve Chair Jerome Powell is set to speak on Friday with traders firming up bets on a September cut.“Wall Street finally hit an air pocket overnight as the US summer lull thins liquidity and weakens the bid for risk assets, especially high flying tech stocks,” wrote Kyle Rodda, a senior market analyst at Capital.com in Melbourne. “There’s also a degree of trepidation heading into the Jackson Hole symposium.”
Bank of America Corp. strategists led by Michael Hartnett have recently said the rally that’s propelled the so-called Magnificent Seven stocks higher from April lows looks stretched. Hartnett has repeatedly warned of a bubble risk in US shares this year.
“It is always easier when the markets are going up,” said Nicholas Bohnsack at Strategas. “It is difficult to poke holes in the bull case; the path of least resistance is likely higher, but we find ourselves increasingly worried that traditional risk assets (stocks and bonds) appear priced to perfection.”
Meanwhile, US Homeland Security Secretary Kristi Noem indicated the government will step up scrutiny of imports of steel, copper, lithium and other materials from China to enforce a ban on goods allegedly made with forced labor in the country’s Xinjiang region.
US Treasury Secretary Scott Bessent also claimed some of the “richest families in India” benefited from the purchase of Russian crude oil, while reiterating plans to boost tariffs on the South Asian nation.
Meantime, traders are gearing up for Powell’s speech with the Treasury market seeing a quarter-point rate cut next month as virtually locked-in and at least one more by year-end.Investors are waiting to see if Powell affirms the market pricing — or pushes back with a reminder that new data arriving before the next policy gathering could change the picture. They’re also looking for clues about the longer-run trajectory of Fed cuts into next year.
A couple of weeks ago, when the latest jobs report revealed a slump in hiring, the case for lower rates appeared all but closed. Then came the sharpest spike in US wholesale prices in three years – fuel for the concern about tariff-led inflation that’s kept Fed officials on hold so far this year.
“We’ll argue that the biggest risk for Treasuries is if the Fed chief chooses to throw cold water on the widely anticipated September rate cut,” said Ian Lyngen at BMO Capital Markets.
While this is not Lyngen’s base-case scenario, he says the front-end of the curve is vulnerable to a correction if Powell doesn’t deliver on the degree of dovishness currently anticipated.
Also, President Donald Trump reiterated his criticism of Powell saying the Fed chair is hurting the housing industry by not lowering rates.
“There is no inflation, and every sign is pointing to a major rate cut,” Trump posted on Truth Social.
On the geopolitical front, Trump urged Russia’s Vladimir Putin and Ukraine’s Volodymyr Zelenskiy to show some “flexibility” as the US president accelerates his efforts to end the war in Ukraine and encourages the two leaders to hold a bilateral summit.
“While there’s a sense that the path to peace is at least slightly clearer, traders remain wary,” said Fawad Razaqzada at City Index and Forex.com. “And rightly so – the toughest conversations, namely over territory, still lie ahead.”
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